CGSI, OCBC cut FCT target price despite record FY2026 payout

[SINGAPORE] CGS International (CGSI) and OCBC Group Research have lowered their target prices for Frasers Centrepoint Trust (FCT).

This comes as the real estate investment trust (Reit) delivered a record full-year distribution per unit (DPU) and its units climbed to their highest level since August.

FCT posted a DPU of S$0.1235 for its financial year ended Sep 30, up 2 per cent year on year. The performance was largely in line with market expectations, supported by healthy organic rental growth and a full-year contribution from Northpoint City South Wing.

Its units hit an intra-day high of S$2.20 on Friday (Oct 23), their highest level since late August, before closing at S$2.18, up S$0.07 or 3.3 per cent. The rise follows a sustained decline in the counter’s unit price since April.

Brokerages remained uniformly positive on the suburban retail landlord, maintaining their “buy” calls.

However, their valuation assessments differed as analysts weighed upcoming asset enhancement initiatives (AEIs), potential cross-border retail competition and higher interest rate expectations.

CGSI on Friday cut its target price to S$2.51 from S$2.86, but maintained its “add” recommendation.

The brokerage raised its cost-of-equity assumption to 6.9 per cent from 6.3 per cent to reflect expectations of higher interest rates, and kept its core earnings forecasts for the trust unchanged.

The revised target price implies an upside of about 19 per cent from FCT’s Thursday closing price of S$2.11.

CGSI noted that FCT’s FY2026 DPU came in marginally below its forecast of S$0.1244. Nevertheless, full-year net property income rose 15.7 per cent year on year, supported by positive rental reversions of 6.6 per cent and near-full occupancy across its retail portfolio.

Similarly, OCBC Group Research lowered its fair value estimate for FCT to S$2.24 from S$2.43, and maintained its “buy” rating.

In a Thursday report, OCBC analyst Andy Wong attributed the reduction mainly to a higher risk-free rate assumption, which was raised to 2.65 per cent from 2.25 per cent.

OCBC also trimmed its FY2027 DPU forecast by 0.2 per cent to reflect higher borrowing cost assumptions, which were partially offset by stronger contributions from joint ventures.

Nevertheless, Wong said that the Reit’s defensive suburban mall portfolio remained well-positioned amid an uncertain macroeconomic environment, supported by stable shopper traffic and recurring spending on essential goods and services.

Asset upgrades to support growth

CGSI remained positive on FCT’s AEIs at Nex and Causeway Point, which are expected to deliver returns on investment of at least 7 per cent.

However, it cautioned that enhancement works could temporarily disrupt rental income, although rental reversions of around 5 per cent in FY2027 could help offset the impact.

DBS Group Research also maintained its “buy” call and unchanged target price of S$2.50, even as it lowered its FY2027 DPU forecast to S$0.1241 from S$0.1266, analyst Tabitha Foo wrote in a note on Friday.

She expects FY2027 to be a “transitional year”, with the opening of the Johor Bahru-Singapore Rapid Transit System (RTS) Link coinciding with major enhancement works at Nex and Causeway Point.

Still, DBS forecasts near-term distributions to remain supported by S$7.6 million in retained distributable income, which FCT plans to release in FY2027.

The brokerage projects DPU to recover gradually to S$0.1250 in FY2028, implying forward distribution yields of around 6 per cent, which it views as “compelling”.

DBS also sees a potential S$1.8 billion growth runway from FCT acquiring additional stakes in Nex and Waterway Point.

Retail spending leakage a concern

Jefferies similarly maintained its “buy” rating and S$2.55 target price, although it flagged softer retail conditions and disruptions from enhancement works as key near-term risks.

In a Thursday note, Jefferies’ analysts Geraldine Wong and Wilson Ng warned that Singapore retail growth could moderate in 2027 following the opening of the RTS Link, which they expect to increase cross-border retail sales leakage by around 3 to 4 per cent.

The impact could coincide with the tapering of SG60 government vouchers, further weighing on tenant sales growth, they added.

Nevertheless, the brokerage expects FCT’s stronger balance sheet and progressive completion of its enhancement works to support medium-term distributions.

It noted that proceeds from the White Sands divestment would lower FCT’s gearing to 36.8 per cent, giving it greater financial flexibility during the two-year enhancement cycle.